What is Crypto Futures Trading? Things You Must Know!

Explore how does futures contracts works on Cryptocurrency and understand in detail about the major perks of Crypto Futures Trading.


What is Crypto Futures Trading? Things You Must Know!

In this digital era crypto market is facing tremendous growth with the cryptocurrencies such as Ethereum, Bitcoin, etc are getting more prevalent among people worldwide and many newcomers can finding their way to exchanges. Spot trading impresses those who are careful in buying digital assets and desiring to hold them for a long period. Whereas Crypto futures trading attracts traders who are keenly interested in capitalizing on market movements. 

What Is Crypto Futures Trading?

It is the process of speculating the future price of cryptocurrencies without having ownership of it. The Crypto futures will enable traders to bet on the future price of digital currency. Crypto futures trading differs from spot trading in many aspects as it does not require participants to hold assets in order to participate. Instead, traders will sell or buy derivatives contracts which denote the value of a given crypto at a particular date in the future.

If you wish to know more about the Crypto Futures trading and its working process and other interesting aspects, then continue to read the blog.

To start with you need to know,

What Is A Crypto Futures Contract?

It is an agreement between two parties either to sell or buy an underlying asset, i.e digital currency on a predetermined date at a predetermined price. It provides the users with a tracking facility of the underlying asset. This denotes that the bet on the crypto price has a regulated expiry date.

Crypto futures contracts have a particular number of units, marginal requirements, pricing criteria, and modes of settlement that investors need to consider. An investor can decide to hold a futures contract or sell it to another party based on the current crypto market conditions. Standard future contracts, Perpetual contracts and Futures with physical delivery are the types of Crypto Futures Contracts. To make you understand better I will also list down some key benefits of Crypto Futures Trading.

Higher Potential Profits - The gain will be high while trading crypto futures with leverage. But, you need to also understand that the risk of loss will also be higher when utilizing leverage

Execution Of Trading Process With Convenient Options - Trading futures will be quite easy even for beginners than trading actual cryptocurrencies as this will require users to hold a secure digital wallet and access a liquid market.

No Funding Rates - Futures do not have a funding rate and future prices will be higher than the current spot price. This will create an opportunity, which is a market-neutral strategy combining a short position in futures and a long position in the spot market. The futures price will converge with the spot market price on the settlement day and this will generate riskless returns irrespective of the volatility or market condition.

Flexible Trading Methods - The implementation of trading strategies works better with crypto futures than trading cryptocurrencies.

How Does Crypto Futures Trading Work?

The working of Crypto futures trading will be very similar to the normal trading on the crypto exchange platforms. In both trading processes, traders will perform the same operations such as open long and short positions along with the execution of risk management techniques. However, futures allow margin trading with high leverage. Leverage is the use of borrowed capital (debt) for your business.

Traders can go short to expect a price drop or can go long to wage on a price advance. The use of leverage is one of the most notable benefits of futures trading. Leverage allows for better capital efficiency as traders do not have to lock whole amounts of capital. But it enhances both potential risks and returns, which is why traders should exercise caution.

I hope you are now clear with Crypto Futures trading, its notable benefits, and working process. You also need to understand certain vital steps to start Crypto futures trading and let us see those now.

Factors to Consider Before Starting Crypto Futures Trading

Find Trading Method - You need to find a trading methodology that will work well for you. It has to be customized to suit your psychological traits, risk tolerance, and long-term objectives.

Form Trading Plan - A trading plan will help you in managing the risk better and improving trading consistency. Include a detailed layout of how you will enter and exit positions while developing a trading plan. Also include entry and exit indicators, stop-loss placements, and position sizing.

Proper Risk Management - The most significant thing about trading is risk management. Risk management strategies will help in protecting capital and enabling realistic expectations. An important risk management recommendation is that never invest more than you are ready to lose

Also, understand that emotional and compulsive trading are the desired forms of gambling behavior that can spoil the trading career. There are many ways to minimize their psychological traits, such as reducing leverage, setting conservative goals and targets, decreasing the number of traders performed on a given period, and never trading with money that you cannot afford to lose.

Keep pace with the blockchain industry and regularly look for ways to enhance your trading skills to stand out from the fierce competition in the crypto trading market. Spend some valuable time learning futures trading, finding the right entry points and monitoring open positions.

Understand that it becomes essential to start trading on the perfect Crypto futures trading platform.

I hope you are now clear with the key steps you need to focus on to venture into Crypto Futures trading. Also, consider some key aspects mentioned below to succeed in your Crypto Futures trading.

  • Liquidity assessment

  • Hedging

  • Diversification

  • Expiration date

  • Market volatility

Final thoughts

From the above sections, you would have now understood the vital concepts of Crypto futures trading. As an entrepreneur, you may wish to develop your own full-fledged Crypto futures trading platform, and for that you need to approach a well-known Cryptocurrency development company like Developcoins that has rich expertise in developing feature-rich Crypto exchange and trading platforms with unrivaled performance.

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